Reverse logistics to manage returns

Return of goods from customer to the seller is considered to be radically complex because of its impact on physical inventory, goods in stock and also on the accounting system of a company. Even though the returns are always inherently problematic, many online shopping sites have gained a competitive advantage by applying some of the industry’s best practices for the customers.  Many online shopping sites today are offering free and easy returns, and the result is that they are creating loyal customers by adopting such practices (Silva et al. 2013). Although returns are never easy for a company, they form an integral part of the online shopping business model and so the companies today are equipped to manage returns in large quantities. One of the recent researches conducted by Newgistics in Texas (USA) shows that the average online seller will spend up to 15% of the total revenues only on returns alone. Today, the shopping experience for the consumer, retailer and supplier alike can mean the difference between success and failure (Vahabzadeh & Yusuff, 2012).

The advent of reverse logistics to manage returns

Reverse logistics is a practice of physically moving materials that have already been received by a customer but they wish to return it (Harris & Martin 2014). The flow of reverse logistics involves planning, implementing and then controlling the flow of products and information from the place of final consumption to the point of origin in a simple and cost-effective manner (Harris & Martin 2014).  In other words, reverse logistics is the practice of moving goods from their final destination for the purpose of proper disposal. When a consumer wishes to return a product, it is the duty of the seller to organize, retrieve and then determine an outcome for the returned product (Harris & Martin 2014). It has come into play to avoid delivery mistakes due to the complexity of global sourcing and to manage problems like direct-to-store shipments, thereby helping in the growth of online shopping.

Return of goods rising every day

It has been noticed in the past few years that the practice of reverse logistics has been increasingly adopted by online shopping sites such as eBay and Amazon. A large number of consumers today prefer to purchase products online. In many purchases, consumers are dissatisfied with the deliverables. To manage returns, many online retailers like Amazon have return policies which are stated in pre-printed return labels on the product. These labels can be directly attached to the original package of the product and sent back to the manufacturer with little or no inputs, and sometimes the shipping is made free for the customers (Petersen et al. 2013). As supply chains assume a more important role in any business enterprise, companies are examining logistics costs to eliminate redundancies in returns (Hsiao & Chen 2012).

The most recent Supply chain operations reference (SCOR) model reflects this trend effectively. It has been described as the “most promising model for supply chain strategic decision making” (Hudson, 2004). The framework of this model is focused on five areas of the supply chain:

  1. Plan
  2. Source
  3. Make
  4. Deliver
  5. Return.

The following areas continuously repeat again and again along the entire supply chain. According to supply chain council, this process covers the “The supplier’s supplier to the customer’s customer. The SCOR model can go into many levels of process detail to help a company analyze its supply chain and implement the modification if needed in the process. SCOR is a process reference model designed for effective communication among supply chain partners. SCOR is used to describe, measure, and evaluate supply chains in support of strategic planning and continuous improvement (Chawla 2007).

Supply chain operations reference model
Supply chain operations reference model

How is it affecting the online retail business?

Returns reduce the profitability of retailers marginally more than manufacturers. Returns are radically complex because of how they impact physical inventory, electronic inventory and accounting systems. All items must be first identified, assigned to a customer or account, assigned a disposition and then physically sorted for processing (Langley 2012).

This difficulty then raises the question whether if this increasing importance of returns is a reflection of a tough economy, or is it just a downright good business practice?. There are several complexities in the reverse logistics process for the company such as processing of the credit card, dealing with customers queries, returning cash back, returning the defective product etc. (Petersen et al. 2013).

The returns may only appear us to affect the retailers but this is also true that the product returned back all the way to the manufacturer can never be a good indication for a smooth business.This is the reason that the latest SCOR model and the industry experts are emphasizing on the adoption of the reverse logistics process.

References

  • Elliott, B. (2013). The SCOR Model is still standard. Bangkok Post, 4 Dec 2012. [online]. Available at http://www.bangkokpost.com/print/383067/ Last accessed on 7 Sep 2015.
  • Chawla, S., 2007. Two Steps Forward, One Step Back. Reverse logistics management. In: Art News, vol. 87, May 1988.
  • Harris, C. & Martin, K., 2014. The Reverse Logistics of Online Retailing, Its Evolution and Future Directions. Journal of System and Management Sciences. Vol.4, No.2.
  • Hsiao, L. & Chen, Y., 2012. Returns Policy and Quality Risk in E‐Business. Production and Operations Management. Vol 21, Issue 3.
  • Hudson, S., 2004. The SCOR Model for Supply Chain Strategic Decisions – SCM | Supply Chain Resource Cooperative (SCRC) | North Carolina State University.
  • Langley, C., 2012. The State of Logistics Outsourcing. Results and Findings of the 16th Annual Study. Third Party Logistics study. Pennsylvania: Capgemini.
  • Peter Bolstorff, Robert Rosenbaum (2003). Supply Chain Excellence: A Handbook for Dramatic Improvement Using the SCOR Model. AMACOM Div American Mgmt Assn.
  • Petersen, J. et al., 2013. Leveraging Product Returns to Maximize Customer Equity,” in Handbook on Customer Equity, V. Kumar and Denish Shah, eds. UK: Edward Elgar Publishing.
  • Silva, D.A.L. et al., 2013. Comparison of disposable and returnable packaging: a case study of reverse logistics in Brazil. Journal of Cleaner Production, 47, pp.377–387.
  • Vahabzadeh, A. & Yusuff, R., 2012. Greening your reverse logistics. Industrial Engineer.

Varsha Ojha

Analyst at Project Guru
Varsha is a Master in Biotechnology from Vellore Institute of Technology and a graduate from the University of Delhi. She has contributed creatively as an Associate Editor and was an active participant in writing for her college magazine. During her post graduation, she has conducted research on various projects and have successfullypresentedher papers in the International Conference for Science Engineering and Technology. She holds two publications in Science Journals which are actively publishing new findings. Besides research and writing, exploring new places and collecting memorable experiences are also part of her amateur interests.
Varsha Ojha

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